Hawk Corp. Reports Operating Results (10-Q)

Hawk Corp. has a market cap of $386.8 million; its shares were traded at around $49.87 with a P/E ratio of 28 and P/S ratio of 2.2. Hawk Corp. had an annual average earning growth of 6.2% over the past 10 years.HWK is in the portfolios of Mario Gabelli of GAMCO Investors, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Net Sales. Our net sales for the third quarter of 2010 were $70.1 million, an increase of $26.6 million, or 61.1%, from the same period in 2009. Sales increases during the period resulted primarily from volume increases to customers in our construction and mining and truck end-markets and new product introductions. Of our total sales increase of 61.1% in the third quarter of 2010, volume represented approximately 65.7 of the total percentage point increase. Offsetting the favorable impact of volume, foreign exchange and pricing negatively impacted the total sales increase by approximately 3.1 and 1.5 percentage points, respectively.

Cost of Sales. Cost of sales was $48.8 million in the third quarter of 2010, an increase of $18.9 million, or 63.2%, compared to cost of sales of $29.9 million in the third quarter of 2009. As a percent of sales, our cost of sales represented 69.6% of our net sales in the third quarter of 2010 compared to 68.7% of net sales in the third quarter of 2009. The increase in our cost of sales percentage was driven primarily by a less favorable product mix and increased labor costs compared to the third quarter of 2009. Of our total cost of sales increase of 63.2% in 2010, the impact of our increased sales volumes represented 60.3 percentage points and the unfavorable shift in product mix represented 16.3 percentage points. Offsetting these increases, our higher absorption of manufacturing overhead and overall cost improvements and the effect of foreign exchange favorably impacted the total cost of sales increase by 9.8 and 3.6 percentage points, respectively.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses increased $1.4 million, or 19.2%, to $8.7 million in the third quarter of 2010 from $7.3 million during the third quarter of 2009. As a percentage of net sales, ST&A was 12.4% in the third quarter of 2010 compared to 16.8% in the third quarter of 2009 as we continued our successful efforts to control discretionary spending, which has not increased at a rate proportional to our rapid sales volume increase. During the third quarter of 2010, we incurred $0.7 million of costs related to our pursuit of strategic alternatives, including our proposed merger transaction, with no comparable costs in 2009, representing 10.1 percentage points of the total increase. Wages and benefits have increased approximately $0.4 million, or 5.3 percentage points, resulting primarily from the impact of 2010 salary increases and the reinstitution of our defined contribution plan company match (which had been suspended from the third quarter of 2009 through the first quarter of 2010) and accruals for our anticipated 2010 profit sharing contribution into our defined contribution plan ($0 in 2009). Incentive compensation expense was $1.0 million in the third quarter of 2010 compared to $0.7 million in the third quarter of 2009, an increase of $0.3 million representing 4.3 percentage points of the total increase.

Interest Expense. Interest expense decreased to $1.4 million in the third quarter of 2010 from $2.0 million in the third quarter of 2009 due to our aggregate purchases of $30.0 million of our senior notes on the open market between November 2009 and May 2010, which reduced our fixed interest expenses for 2010 as compared to 2009. These repurchased notes are being held by us in treasury. We did not have any borrowings under our variable rate domestic or Italian bank facilities in the third quarters of 2010 or 2009. Included as a component of Interest expense in our Consolidated Statements of Operations is the amortization of deferred financing costs for both 2010 and 2009 and the amortization of a consent payment related to our senior notes amendment in February 2010 for the three months ended September 30, 2010.

Income Taxes. We recorded a tax provision from our continuing operations of $4.7 million for the quarter ended September 30, 2010, compared to a tax provision of $2.0 million in the third quarter of 2009. Our effective rate of 35.6% in the third quarter of 2010 differs from the current U.S. statutory rate of 35.0% primarily as a result of the impact of non-deductible expenses on our worldwide taxes.

Net Sales. Our net sales for the first nine months of 2010 were $185.2 million, an increase of $58.4 million or 46.1% from the same period in 2009. Sales increases during the period resulted primarily from the overall economic improvement in most of our end-markets as customers started the reordering process and shipments increased in response to increasing orders and production. Of our total sales increase of 46.1% in the first nine months of 2010, volume represented approximately 50.7 of the total percentage point i

Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC.
Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.